When most people think of investing in real estate, they think of multi-family homes or commercial properties. But there is another property class which you might want to consider adding to your property portfolio – ranch land.
Just as the name implies, ranch lands are wide open vistas used by grazing animals such as cows. These days investors are not only buying up these properties for ranching, but they are also converting properties into mixed-use developments, some of which are ultra-luxurious.
But as a budding investor, you need to crawl before you and walk and this article will give you some of the insights, you’ll need to know about how to make money in ranch land – or any other undeveloped property for that matter.
Why Should You Invest in Ranch Land?
For starters, they are not making any more. But unlike other limited resources ranch lands on a per-acre price are often less expensive than other parcels on offer. This is because ranch lands are often in remote locations, but this shouldn’t dissuade you.
In fact, investors can either choose to keep their investment properties as working ranches, bring on others to develop a resort, or just bank the land until another developer makes you an offer you can refuse.
Beyond this, the land is a hard asset which you can use with banks as collateral when needed. Note, this is not meant to advocate taking on bank debt but having available assets which you can pledge for a loan are useful when you are trying to ensure your financial independence.
Yet another reason to invest in ranch land is that is often less expensive and thus you can acquire more property for less. From there you could even subdivide the property to make back some of the money you invested in the land – thus ensuring your return.
This approach can be very profitable as it means that you are acquiring the land for a discount, but you also don’t need to worry about the cost of capital improvements and ongoing maintenance. If this interests you, then you might want to check out Land Broker MLS, which has a database of undeveloped land and ranch land available throughout the country.
Just keep in mind that no investment is without risk and if you do decide to acquire a property, then you will want to make sure you have a plan for it and have conducted your due diligence.
Common Investment Strategies
As outlined, investment in ranch land can be profitable but did you know that there are several strategies buyers use to make money. These include a buy and hold strategy, leasing the property back to a farmer or a rancher (known as a leaseback), and even donating the property as a nature reserve.
The latter is not only good for the environment as it allows the land to return to its natural state, but it can also be used to offset a tax liability from another investment. Just make sure that the structure used to hand over the land aligns with recently updated tax rules as this will make sure that you can maximize your deduction.
No matter your investment strategy, you will want to keep in mind that bank loans for vacant land often has different criteria compared to purchasing a home. As such, many buyers opt for what is known as seller financing. This is when the seller will offer the financing to acquire the property – though keep in mind that the interest rate might be slightly higher than standard bank rates.
However, the advantage of this approach is that it allows for the transaction to be completed to quicker than waiting for a bank to approve a loan application. Just keep in mind that a default will mean the seller will not only retake possession of the property, but you will not be eligible for any payments made to that point. The exception being when a sale of the land for more than the amount owed might net you a small profit.
What Else to Think About?
Investing in ranch land or other vacant lands might not be for everyone and before acquiring these types of properties you should know why this investment works for you. In some cases, you might just want to bank the land, while in other cases you might have a plan to develop the property in the future.
Either way, you will want to make sure you have a plan for your investment, or you’ll end up with a property and no idea how to make money from it. Remember, investing is about managing risk to maximize your returns and if you want to make money from any investment, then you should make sure you have done your homework first.